January soybeans advanced 5.75 cents and March +6.50 on total volume of 197,590 contracts. Total open interest increased by 771 contracts, which relative to volume is approximately 85% below average. The January contract accounted for loss of 12,893 of open interest. As this report is being compiled on December 12, January soybeans are trading 23.50 lower and March -20.50. The USDA reported total soybean sales of 1108.6 thousand metric tons (tmt), which brings total commitments season to date of 1.422 billion bushels (bb) versus USDA projections of 1.475 bb.
In yesterday’s report, we cautioned clients to tighten up their sell stops and also to write out of the money calls in soybeans as a way of mitigating loss of profit on positions. We assume many of you have been stopped out and recommend holding the short call position. We think there is a bearish zeitgeist in the grain and commodity complex, and lower prices are in store. According to the last COT report, which was tabulated on December 3, managed money was long soybeans by a ratio of 7.50:1, which is slightly above the ratio of October 22 of 7.28:1, but below 8.77:1, the ratio on October 15. In short, managed money will provide fuel for a continued downside move. Stand aside with the exception of the short call position.
January soybean meal gained 60 cents while the March contract advanced $1.70 on total volume of 83,858 contracts. Total open interest declined by 8 contracts. The December contract lost 506 and January – 8,951 of open interest. The USDA reported weekly sales of 2229.2 tmt, which brings total commitments to 5871.7 tmt versus USDA projections of 9526 tmt. As this report is being compiled on December 12, January soybean meal is trading $9.20 lower and March -7.70. Clients should be on the sidelines.
March corn advanced 3.25 cents on very light volume of 116,182 contracts. Total open interest declined by 897 contracts, which relative to volume is approximately 60% below average. The December and March contracts lost a total of 5,687 of open interest and there were open interest increases in the forward months which brought down total open interest to a significantly below average number. The USDA reported weekly sales of 695.4 tmt, which brings total commitments season to date to 1.051 bb versus USDA projections of 1.450 bb. As this report is being compiled on December 12, March corn is trading 9.50 lower. Corn remains on a short and intermediate term sell signal. Stand aside.
March Chicago wheat lost 2.00 on volume of 59,606 contracts. Total open interest increased by 136 contracts, which is minuscule and dramatically below average. The December and March contracts lost a total of 2,382 of open interest, which makes the open interest increase a bit more impressive (bearish). The USDA reported that weekly sales totaled 372.2 tmt, which brings total commitments to 844.3 mb versus USDA projections for the season of 1.110 bb. Although on December 11, March wheat did not take out the low of 6.35 made on December 10, however, this has accomplished on December 12 with a new low for the move of 6.30 1/4. March Chicago wheat remains on a short and intermediate term sell signal. Stand aside.
March Kansas City wheat advanced 0.50 cents on volume of 18,419 contracts. Total open interest increased by 727 contracts, which relative to volume is approximately 50% above average meaning that longs and shorts were aggressively initiating new positions, but March KC wheat closed only fractionally higher. The December and March contracts lost a total of 1,004 contracts. KC wheat remains on a short and intermediate term sell signal. This will be our last report on KC wheat until such time as we see a trading opportunity. We will continue to report on Chicago wheat.
March cotton advanced 1.80 cents on heavy volume of 28,706 contracts. Volume was the strongest since November 14 when 38,452 contracts were traded. On December 11, total open interest declined by 23 current contracts. The March contract accounted for loss of 2,320 of open interest. The open interest action on December 11 was disappointing to say the least and it will be important to see open interest increases on further advances. If not, the move could stall, and possibly reverse. In yesterday’s report, we mentioned that cotton had traded through 3 of the 4 key pivot points. The last pivot point of 82.94 is perhaps the hardest point of resistance for cotton to overcome. For cotton to continue to move higher, March cotton’s daily low must be above 82.94. If cottont is consistently unable to do this, and open interest does not increase, we could see cotton rollover to the downside. For futures traders, we recommend that stops be moved up to reduce any potential loss the event the market reverses. If the market is able to overcome the obstacle of the final pivot point, we see a rally to at least 84.03, which is the 200 day moving average.This will provide the next area of resistance. March cotton generated a short term buy signal on December 9. Stay with bullish positions.
March coffee lost 55 points on volume of 20,290 contracts. Total open interest declined by 569 contracts, which relative to volume is average. The March contract lost 1,245 of open interest. If the low of 1.0980 holds on December 12, coffee will generate a short-term buy signal. Although we discourage trading the futures contracts because of liquidity and volatility issues, we would use the December 11 low of 1.0935 as an exit point for long futures positions if clients are inclined to trade futures. We much prefer options because of the calibration of risk based upon strike prices and very importantly coffee options are cheap at this juncture. Managed money is net short by 21,864 contracts, which means there is fuel for the upside move when they cover positions. The 50 day moving average for March coffee is 1.1138, which is approximately its current price as of this writing on December 12. Therefore, bullish positions can be initiated at current levels if the low of the day holds.
February live cattle advanced 15 points on very light volume of 31,223 contracts. Total open interest declined by 3,680 contracts, which relative to volume is approximately 280% above average meaning that for the 5th day in a row liquidation was off the charts. From December 5 through December 11, total open interest has declined by 26,256 contracts while February cattle has declined 1.535 cents. This is a massive decline of open interest and in our view indicates that market participants are throwing in the towel on cattle. On December 10, February cattle generated a short-term sell signal, but remains on an intermediate term buy signal. If the intermediate term buy signal holds, and we see a significant reduction in manage money longs, cattle may finally be ready to make an assault into new high ground. Until this occurs, we suggest a sideline stance.
February lean hogs lost 95 points on volume of 46,609 contracts. Volume increased approximately 10,300 contracts from December 10 when February hogs declined 1.125 cents and total open interest declined 678 contracts. On December 11, total open interest declined by a massive 4,529 contracts, which relative to volume is approximately 175% above average, meaning that market participants were headed for the exits in large numbers. Stay with the bearish positions we have recommended and futures traders should lower their buy stops to the December 10 high of 89.950, or to a level that make sense from a risk management point of view.
WTI crude oil:
January crude oil lost $1.07 on heavy volume of 700,689 contracts. Interestingly, volume on Wednesday increased from the 642,047 contracts traded on Tuesday December 10 when crude oil advanced $1.17 and open interest increased by 9,153 contracts. On December 11, total open interest declined by 14,244 contracts, which relative to volume is approximately 20% below average. The January contract lost 36,643 of open interest. In short, volume increased on the price decline of December 11 compared to the price advance on December 10. Additionally, the open interest decline as a percentage of volume was significantly greater on December 11 than the open interest increase as a percentage of volume on December 10. We see no compelling reason to be involved in WTI at this juncture. January WTI remains on a short-term buy signal, but an intermediate term sell signal. Stand aside.
Brent crude oil:
February Brent crude oil advanced 38 cents on volume of 593,660 contracts. Total open interest declined by 8,311 contracts, which relative to volume is approximately 40% below average. The January contract accounted for loss of 29,753 of open interest. Like WTI, we see no compelling reason to be involved in Brent crude oil. Brent remains on a short and intermediate term buy signal.
January natural gas advanced 10.00 cents on huge volume of 658,031 contracts. Volume was the highest since December 5 when 671,133 contracts were traded and January natural gas advanced 17.2 cents while total open interest increased a massive 36,152 contracts. On December 11, total open interest increased by a massive 26,105 contracts, which relative to volume is approximately 55% above average meaning that new longs were aggressively entering the market and driving prices significantly higher. The January contract lost 22,449 of open interest, which makes the total open interest increase much more impressive (bullish). Natural gas made a new high on December 11 of $4.343, and on December 12, January natural gas has made another new high at 4.434 and is currently trading 5.3 cents higher on the day. The move in natural gas has been nothing short of spectacular and we continue to advise clients not chase the market, and very importantly, do not short the market. OIA announced that natural gas generated a short-term buy signal on November 25 and an intermediate term buy signal on December 2. The first sign of the top may be a huge volume day accompanied by a massive increase of open interest
The Energy Information Administration announced that working gas in storage was 3,533 Bcf as of Friday, December 6, 2013, according to EIA estimates. This represents a net decline of 81 Bcf from the previous week. Stocks were 273 Bcf less than last year at this time and 109 Bcf below the 5-year average of 3,642 Bcf. In the East Region, stocks were 155 Bcf below the 5-year average following net withdrawals of 46 Bcf. Stocks in the Producing Region were 41 Bcf above the 5-year average of 1,173 Bcf after a net withdrawal of 9 Bcf. Stocks in the West Region were 6 Bcf above the 5-year average after a net drawdown of 26 Bcf. At 3,533 Bcf, total working gas is within the 5-year historical range.
Copper: On December 11 , March copper generated a short-term buy signal, but remains on an intermediate term sell signal.
March copper advanced 2.85 cents on volume of 66,937 contracts.Total open interest declined by 1,331 contracts, which relative to volume is approximately 20% below average. March copper made a new high for the move at $3.2955, which is its highest price since November 4 when it made a high of 3.3150, and trading on December 12 shows another new high at 3.3105. Continue to hold the long March-short July, or September or December 2014 contracts.
The December euro advanced 24 pips on very heavy volume of 371,407 contracts.Volume increased by 28,000 contracts over December 5 when the December euro advanced 88 pips and total open interest increased by 12,026 contracts. On December 11, total open interest declined by 3,714 contracts, which relative to volume is approximately 50% below average.The euro made a new high for the move at 1.3811, and the decline of open interest indicates the market is clearly overbought and appears that some market participants were taking money off the table. As this report is being compiled on December 12, the euro is trading 41 pips lower. Stand aside.
The December British pound lost 64 pips on extremely heavy volume of 234,064 contracts. Remarkably, volume was the highest since July 5 when 259,839 contracts were traded and the September pound closed at 1.4893. On December 11, total open interest increased by a massive 22,208 contracts, which relative to volume is approximately a massive 175% above average meaning that aggressive new short sellers were entering the market and driving prices lower. We consider the action on December 11 from a price, volume and open interest standpoint to be extremely negative for the pound. One important reason for the negative analysis is that the pound has seen a steady increase of open interest for the past month and the long to short ratio of managed money according to the latest COT is 2.89:1, which is the highest in since the COT report of October 29 when it reached 3.08:1. In short, that open interest didn’t decline after a massive speculative build of open interest , tells us longs are digging in and refusing to liquidate. This will add additional fuel to the downside as new short sellers enter the market and drive prices lower. We continue to believe that the long side of GBP/EUR pair has further to go on the upside, but as we said before, it is in a corrective mode and based upon yesterday’s action this correction has further to go.
S&P 500 E mini:
The December S&P 500 E mini lost 22.25 points on heavy volume of 2,375,059 contracts. Volume was the highest since November 7 when 2,469,000 contracts were traded and the E mini lost 20.25 points while open interest increased by 15,547 contracts. On December 11, total open interest increased by 22,208 contracts, which relative to volume is approximately 50% below average, but it shows a pattern of open interest increases on price declines. This is bearish open interest action relative to the price decline. Also, we have commented a number of times that volume expands on declines and contracts on rallies.This is another sign there is more fear on the downside than there is euphoria on the upside.We strongly advise the maintenance of long put protection in the E mini for those clients who hold long equity positions.